The Use of Accounts Receivable as Collateral
A pledge of Accounts Receivable involves the use of a firm's accounts receivable as collateral for a short-term loan
- The pledging process:
- Lender evaluates the accounts receivable to determine their desirability as collateral
- Lender chooses the acceptable accounts with adjustments
- Lender typically advances 50-90% of the total dollar value of the acceptable accounts receivable
- Lender files a lien (legal claim) on the collateral
- As borrower collects the receivables, the loan is paid off
- Pledging can be done on either a notification or non-notification basis
- Pledging costs are generally high
- 1994, HarperCollins Publishers